Third Quarter Earnings Release October 17, 2008

Size: px

Start display at page:

Download "Third Quarter Earnings Release October 17, 2008"

Bartholomew Cole
5 years ago
Views:

1 Third Quarter 2008 Earnings Release

2 Forward Looking Statements This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of All statements, other than statements of fact, that address activities, events or developments that we or our management intend, expect, project, believe or anticipate will or may occur in the future are forward-looking statements. Forward-looking statements are based on management s assumptions and assessments in light of past experience and trends, current economic and industry conditions, expected future developments and other relevant factors. They are not guarantees of future performance, and actual results, developments and business decisions may differ from those envisaged by our forward-looking statements. Our forward-looking statements are also subject to risks and uncertainties, which can affect our performance in both the near- and long-term. We identify the principal risks and uncertainties that affect our performance in our Form 10-K and other filings with the Securities and Exchange Commission. 2 3Q 2008 Earnings Release

3 Overview Continuing to Deliver Results in Tougher Environment Organic Sales Growth Supporting Double Digit Earnings Growth Continued Strong YTD Free Cash Flow Conversion Signs of Weaker Economic Conditions Select Softness Balanced With Continued Strength Continue To Monitor; Proactive Cost Management Honeywell Well Positioned Great Positions Aligned With Macro Trends Diversified Portfolio; Global, Short / Long Cycle Mix, Installed Base VPD, HOS, FT Supporting Performance Conservative Planning, Contingencies Disciplined Capital Deployment Strong Leadership Team 3 3Q 2008 Earnings Release

4 Financial Summary (M) 3Q07 3Q08 Sales $8,735 $9,275 Segment Profit $1,167 $1,158 Margin % 13.4% 12.5% 6% Growth 3% Acq./Div. Impact 2% F/X Impact (1)% B&GA Accruals One-Time Impacts 13.9% adjusted* Net Income $618 $719 16% Growth EPS $0.81 $ % Growth Free Cash Flow $736 $556 95% Conversion YTD Track Record Continues 4 3Q 2008 Earnings Release *See Slide 6

5 3Q EPS Walk 3Q EPS, Reported $0.97 CS Gain 0.56 B&GA Accruals (0.06) Gain on sale to BE Aerospace, net of incremental tax Realignment of B&GA contract milestones Repositioning / Other (0.23) $163M Severance, $70M Facilities / Other Environmental (0.27) Remediation Plans, ongoing run-rate reduction 3Q EPS, Adjusted $0.97 $ $0.20 Annual Benefit 2009 And Beyond 5 3Q 2008 Earnings Release

6 3Q Margin Walk Reported Segment Margin 12.5% B&GA Accruals 0.6 Formula Pricing* 0.2 Acquisitions 0.3 Gustav / Ike 0.3 Adjusted Segment Margin 13.9% Strong Operational Performance 6 3Q 2008 Earnings Release *Includes Specialty Materials pass-through pricing

7 3Q Cash Deployment ($B) Beginning Cash Balance $2.2 Consumable Solutions Sale 0.9 Free Cash Flow 0.6 Debt Issuance, Net 0.6 Share Repurchases, Net (1.0) Acquisitions (0.8) Dividend (0.2) Ending Cash Balance $2.3 Managing Liquidity 7 3Q 2008 Earnings Release

8 HON Update What We Are Seeing Strength Across Aero OE, Defense and Space, ACS Solutions and UOP Slowing Growth in Select ACS Products; AT&R Flight Hours as Anticipated Monitoring Short-Cycle OE and B&GA Aftermarket Trends Benefits From Prior Repositioning, FT and HOS Actions What We Are Doing Fixed Costs Continuing Census Freeze, Real Estate Actions Discretionary Spending Businesses Redoubling Reduction Efforts Investment Prioritization New Programs and Capital Expenditures Focus Cash Balances Managing Liquidity Decisive Action In Slowing Environment 8 3Q 2008 Earnings Release

9 Aerospace* (M) 3Q07 3Q08 V'07 Sales $ 3,023 $ 3,171 5% Segment $ 552 $ 582 5% Profit Margin 18.3% 18.4% 10 bps Business Highlights Financial Highlights Sales up 5% - Air Transport & Regional up 5% OE up 7% Aftermarket up 5% (Flight Hours up 2.8%) - Business & General Aviation up 10% OE up 15% Aftermarket up 3% - Defense & Space up 2% + AT&R and B&GA OE Growth + Stable Defense & Space Performance + Price and Productivity Actions AT&R Flight Hours - Growth Decelerating as Anticipated B&GA Aftermarket - Softness in Smaller / Older Jets Segment Profit up 5% 10 bps Margin Expansion + Price / Volume + Productivity Inflation R&D Investments *Adjusted to exclude B&GA accruals and the impact of acquisitions and divestitures, see reconciliation Broad Portfolio Delivering 9 3Q 2008 Earnings Release

10 Automation And Control Solutions (M) 3Q07 3Q08 V'07 Sales $ 3,196 $ 3,688 15% Segment $ 373 $ % Profit Margin 11.7% 11.7% flat Business Highlights + Continued Solutions Orders Strength + Acquisitions Performing Above Plan + Price and Productivity Actions Continued S&C and Residential Softness Monitoring Short-Cycle Product Trends Sales up 15% Financial Highlights 11% Acquisition Impact 2% F/X Impact - Products up 19% Norcross and Metrologic Ahead of Plan New Products and Continued Life Safety Strength - Solutions up 10% Orders up 18% Continued Middle East and China Strength Segment Profit up 15% Flat Margins + Productivity + Price Inflation Acquisitions Executing In Slower Growth Environment 10 3Q 2008 Earnings Release

11 Transportation Systems (M) 3Q07 3Q08 V'07 Sales $ 1,226 $ 1,156-6% Segment $ 124 $ % Profit Margin 10.1% 8.8% (130) bps Business Highlights + Continued New Platform Wins Weak European and US OE Production Turbo Customer Launch Delays High Diesel Prices Impacting Penetration Continued CPG Challenges Sales down 6% Financial Highlights F/X Impact 6% - Turbo down 9% Declining Production Volumes; European Consumer Shift - CPG down 4% F/X and Price More Than Offset by Lower Volume - Friction Materials up 3% F/X and Pricing Actions Segment Profit down 18% 130 bps Margin Contraction + Productivity Turbo Volume Platform Investments Challenging Environment 11 3Q 2008 Earnings Release

12 Specialty Materials (M) 3Q07 3Q08 V'07 Sales $ 1,211 $ 1,321 9% Segment $ 157 $ 158 1% Profit Margin 13.0% 12.0% (100) bps Business Highlights + UOP Backlog Growth > Sales + R&C Plant Performance + Price and Productivity Actions Hurricane Impacts Global Commodity Demand Financial Highlights Sales up 9% - UOP down 14% Timing of Catalyst Sales (occurred in 1H08) - Resins and Chemicals up 52% Formula Pricing Benefits - Fluorine Products up 18% - Specialty Products up 3% Segment Profit up 1% 100 bps Margin Contraction + Price + Productivity Raw Materials Formula Pricing Hurricane Impacts UOP Mix, Formula Pricing, Hurricane Impacts 12 3Q 2008 Earnings Release

13 2008 Financial Summary (B) 9 Mos'08 V' E V'2007 Sales Aerospace $9.4 5% ~$12.7 ~4% Automation & Control $ % ~$14.2 ~14% Transportation Systems $3.8 2% ~$4.8 ~(4)% Specialty Materials $4.2 15% ~$5.5 ~14% Total Honeywell $ % ~$37.2 ~8% EPS $ % $ $3.80 ~20% FCF $2.0 (2)% ~$3.2 ~2% 4Q08 Sales ~$9.4B, Up ~2% 4Q08 EPS $ $1.01, Up 7% - 11% 13 3Q 2008 Earnings Release

14 2009 Economic / Industry Outlook Overall Outlook Some Impact Expected From Global Slowdown In All Markets HON Approach To Plan Conservatively, Ensure Contingencies Disciplined Capital Deployment, Maintain Liquidity Benefiting From Repositioning and Productivity Actions Industry Highlights AERO OE Production, Defense Budget Up; Slower Global Flying Hours ACS Continued Solutions Growth; Some Products Softening TS Reduced Global Production and Diesel Penetration SM Strong Demand For UOP Solutions; Weaker Commodity Markets 2009 Outlook Call December 9th 14 3Q 2008 Earnings Release

15 Appendix Reconciliation of non-gaap Measures to GAAP Measures 15 3Q 2008 Earnings Release

16 Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin ($M ) 3Q07 3Q08 Sales $8,735 $9,275 Cost of Products and Services Sold (6,646) (7,476) Selling, General and Administrative Expenses (1,144) (1,309) Operating Income $945 $490 Stock Based Compensation (1) Repositioning and Other (1, 2) Pension and OPEB Expense (1) Segment Profit $1,167 $1,158 Operating Income $945 $490 Sales $8,735 $9,275 Operating Income Margin % 10.8% 5.3% Segment Profit $1,167 $1,158 Sales $8,735 $9,275 Segment Profit Margin % 13.4% 12.5% (1) Included in cost of products and services sold and selling, general and administrative expenses (2) Includes repo sitio ning, asbesto s, enviro nmental expenses and equity inco me (beginning 1/1/2008) 16 3Q 2008 Earnings Release

17 Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion ($M ) 3Q07 3Q08 Cash Provided by Operating Activities $910 $769 Expenditures for Property, Plant and Equipment (174) (213) Free Cash Flow Cash Provided by Operating Activities $910 $769 Net Income Operating Cash Flow Conversion % 147% 107% Free Cash Flow $736 $556 Net Income Free Cash Flow Conversion % 119% 77% 17 3Q 2008 Earnings Release

18 Reconciliation of Segment Profit to Operating Income and Calculation of Segment Profit and Operating Income Margin ($B) E Sales $34.6 ~$37.2 Cost of Products and Services Sold (26.3) ~(28.4) Selling, General and Administrative Expenses (4.6) ~(5.1) Operating Income $3.7 ~$3.7 Stock Based Compensation (1) 0.1 ~0.1 Repositioning and Other (1, 2) 0.6 ~1.1 Pension and OPEB Expense (1) 0.3 ~0.1 Segment Profit $4.7 ~$5.0 Operating Income $3.7 ~$3.7 Sales $34.6 ~$37.2 Operating Income Margin % 10.7% ~10.2% Segment Profit $4.7 ~$5.0 Sales $34.6 ~$37.2 Segment Profit Margin % 13.5% ~13.3% (1) Included in cost of products and services sold and selling, general and administrative expenses (2) Includes repositioning, asbestos, environmental expenses and equity income (beginning 1/1/2008) 18 3Q 2008 Earnings Release

19 Reconciliation of Free Cash Flow to Cash Provided by Operating Activities and Calculation of Cash Flow Conversion ($B) E Cash Provided by Operating Activities $3.9 ~$4.1 Expenditures for Property, Plant and Equipment (0.8) ~(0.9) Free Cash Flow $3.1 ~$3.2 Cash Provided by Operating Activities $3.9 ~$4.1 Net Income $2.4 ~$2.8 Operating Cash Flow Conversion % 160% ~146% Free Cash Flow $3.1 ~$3.2 Net Income $2.4 ~$2.8 Free Cash Flow Conversion % 129% ~114% 19 3Q 2008 Earnings Release

20 Reconciliation of Adjusted Aerospace Sales and Segment Profit to Reported Aerospace Sales and Segment Profit Sales Segment Profit Segment Margin 3Q08 Aerospace, $M V% V% V Adjusted 3,023 3,171 5% % 18.3% 18.4% 10 bps Acquisitions / Divestitures, net (1) B&GA Accruals - (65) - (65) Reported 3,102 3,110 0% % 18.1% 16.6% -150 bps 3Q08 Sales Growth AT&R OE AT&R AM B&GA OE B&GA AM Adjusted 7% 5% 15% 3% Acquisitions / Divestitures, net -18% -1% 0% 0% B&GA Accruals 0% 0% -19% 0% Reported -11% 4% -4% 3% 20 3Q 2008 Earnings Release

21 21 3Q 2008 Earnings Release

2009 Outlook. December 15, 2008

2009 Outlook. December 15, 2008 Forward Looking Statements This report contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934. All statements, other than statements of fact, that